When you open an account at a bank or credit union you’re usually going to open both a checking account and a savings account. People think that the savings account is for saving money, but nothing could be further from the truth.
When you open your savings account the associate that helps you will usually ask you if you want to have your savings account “linked” to your checking account. Linking it helps you avoid overdraft charges by pulling money from your savings account when you spend more money than is in your checking account. So far, this sounds great, right? It sounds wonderful until you realize that using this method may reduce your bank fees, but you’re not saving any money.
A better solution is to keep the money that you want to save, say for an Emergency Fund, in a money market account. A money market account can be opened up at your brick and mortar credit union or bank or an online financial institution. Money market accounts are better than savings accounts for saving money for two reasons. The first reason is that they usually offer better interest rates (free money) than a savings account. The second reason is that they are less accessible.
Having less access to your money is great if you really are trying to save it because you won’t be able to spend it as easily. Money market accounts have restrictions that levy fees if you make more than a specific amount of withdrawals and/or deposits per month. This will help you leave the money in the account thereby earning more interest and reaching your savings goals more quickly. If you want to spend the money in your money market account on a non-emergency item but you remember that you have to go home and get the ATM card or checks for that account and come back to purchase the item you might think twice. If you know you can just slide your card for your checking account and it will pull money from your savings accounts there’s a larger chance that you’ll spend the money you’re supposed to save.
Savings accounts are great to use as a cushion for your checking account, but make sure that you understand their purpose. If you really want to save money, don’t put it in a savings account put the money in a money market account.
Shay Olivarria is the most dynamic financial education speaker working today and the author of three books on personal finance. To hire her, visit www.BiggerThanYourBlock.com.
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